Finance Your Construction Project: How to Use Your Resources to Maximize the Outcome

I dream of renovating but am not sure if I can afford it.

– Yes, I know what you mean; it’s easy for so many people who have unlimited cash or enough savings to run their project in any way they want!

Really? I am a Home Designer, and I don’t know anyone like that!

Most of the people I came across don’t know much about the construction costs, nor haven’t set a budget for their project. Even better, they have no idea where the money would come from!

Before you start any construction project, it’s essential to get a clear perspective of your budget and how much you can pay for your renovation or custom home building. Better said, to finance your construction project, you need to be prepared to stretch and to know precisely how far you’re ready to go.  

I see many of my clients taking their project and asking a builder to provide them with an idea of the cost. Without a plan or drawing in hand, how could anyone expect the contractor to give an even remotely accurate estimation? 

Allow Me to Show You How to Finance Your Construction Project, and Do Things the Right Way, in Your Best Interest

Firstly, try to have an idea about what you want to do, even a basic one. Secondly, make sure to consult an experienced designer who will understand your needs and properly involve. Share your dreams and ideas of the renovation or custom home with a designer who knows their job well. 

An experienced home designer can offer you a reliable plan to develop based not only on your dream but also the approximate cash availability. Only after that you can decide how to finance your construction project. 

These are some options you can look at:

Savings Account

This is the most reliable way to finance your construction project, as long as you have enough money sitting in your account. The best use you can put it in is your overall life improvement.

Borrowing From Friends or Family

Many of my clients, who want to add a secondary suite to their property for the purpose of creating an extra income, rely on this idea. They borrow from their siblings, children, or parents to build a laneway home or an ADU, and pay them back in installments as the investment starts to pay off.

This way they don’t have to go through getting approval from a financial institutions. But what if you don’t have someone to borrow money from? That where you should get creative!

Finance Your Construction Project Through Shared Accommodation 

If all of the above fails, there are still many additional ways to jump over the financial obstacle. Some people dream of building a single-family home, and they don’t want to live in a condo. Usually, they team up with a friend and buy a duplex or a single-family house with ADU. This way, they can share the cost and still get their own paradise, avoiding significant debt along the way. 

Finance your construction project
Finance your construction project

Just the other day, a client called me to discuss the idea of building a duplex in Vancouver. She had it arranged with a friend to purchase a lot, build a passive house duplex, and share the cost so they can own a great affordable home, each on its own side. After calculating their budget, I told them the money wouldn’t be enough to finish the project in the way they want. But the solution was easy—they can apply for a construction loan, which I will explain next. 

Since each unit would have a secondary suite, the money they could collect from the rental could easily pay for that loan. After several years, the loan will be paid off in full, leaving them with an extra source of income.

Now, I am aware that my readers come from different regions, but most places have collected equity over the years. If the property you own doesn’t have any mortgage, there’s a good chance that the bank will grant a loan or refinance the house. The same applies if the mortgage amount is less than 30% of the house market value. Naturally, as long as you meet their other criteria and credit requirements.

Using the Bank’s Money

If you plan to renovate your house, you can ask your designer to draw the plans and have the contractor write an official cost estimate for you. Next, you have to present your project with the estimated cost and timeline to the financial institution’s representative. Banks love to give loans as it allows them to collect interest. However, for the same reason, they have to make sure that their money is safe, granted to a reliable person. 

If you are planning to build a new house, however, the scenario is a bit different. I had a client who bought a lot and paid a 40% down payment. He also had some cash aside, ready for starting the project. He hired me to design the house and help him to manage the builder and all trades for him. While revising, I found out that he didn’t have enough money to finish the project after all. The next step was to help him apply for a construction mortgage.

We finished the house’s framing, installed the windows and exterior doors, and fixed the roof membrane. This stage of the building is called “luck-up.”

This is where I introduced him to a bank rep and presented the bank with the drawings. We went over the total construction cost, the amount that has been spent to that point, and the estimated value of the house after the finish. The bank sent an appraisal, and I had to present the same documentation to him, now for his approval. After the assessment has been done successfully, the bank granted my client the money he needed to finish his project.
If you think you need help with a similar process call me to discuss further at 604-929-6696.

organic architecture
More budget, more features and benefits

Why Is It Good to Use Banks’ Money to Finance Your Construction Project?

Firstly, you can take advantage of the low-interest rate and use it to upgrade your project further. That is particularly convenient if you have the potential of implementing a rental suite within your project. The income you collect from the rental unit will pay for the mortgage.

I understand some people are afraid of going under any dept. Like another client of mine, who could have been easily approved by the bank for the entire renovation of his house. The only problem? His wife was against any loan or mortgage. So they ended up living in their run-down house for the rest of their lives.

What Exactly Is a Construction Loan

A construction loan is a segment of short-term loans, tailored specifically for use by an individual home builder. Construction loans serve to finance your construction project of either building a new home or renovating the existing one.

Construction loans are not supposed to cover the entire cost of the project. Instead, those are used as a temporary financing bridge that can cover the missing part of the budget during the build time. Typically, after the construction is complete, the homeowner will obtain a longer-term solution. The options include refinancing the existing construction loan and transition to a conventional mortgage.

It may happen, though, that a bank considers your construction project as a risky investment. In that case, you may still get the money, but the interest rate will likely be somewhat higher. Also, such a loan will feature strict terms that you must adhere to, like paying off in entirety by the time the construction is complete.

What A Construction Loan May Include

A construction loan comprises one application and one closing. Those cover the construction phase and the permanent financing.

It can start with the initial loan payment you need to purchase a lot. If you already hold a loan on that property, the first disbursement of the loan will pay off that specific loan before the construction starts.

The bank may make scheduled payments to your builder during the 12-month construction phase. Subsequently, they will offer a transition to a fixed-rate mortgage after that period.

Finance your construction project and build a laneway house
Finance your construction project and build a laneway house

How Can You Use Construction Loans to Finance Your Construction Project

Construction loans provide more flexibility in utilizing your budget to get the most out of it. That may include expansions, hiring better designers, making payments to contractors, or even getting more luxury materials. Even when the initial budget seems sufficient, by upgrading it with a loan, you can get more quality in each segment and get more creative with design solutions.

The Bottom Line

As Robert Kiyosaki says, there is good debt, and there is bad debt. To apply for a loan and mortgage to upgrade your living standard, which gives you better mental and physical health, especially if you can collect rental income, is good debt.
So, do not be afraid to get into a good debt if the end result will give
you a better financial outcome as well as more comfort and mental health.

After all, life is too short and we should live it to the fullest!

By Aryo Falakrou (My Home Designer)

Building Technology and Safety: What COVID-19 Brings on the Table

The Good News

The construction and building technology have both improved and evolved over the years to help us encounter difficulties with building safety we faced over the years. Fire, water damage, collapse, and earthquake issues all led us to develop more advanced building codes for building designers, electrical, mechanical, structural practice as well as materials production. Architects and designers always have to keep learning to interpret the design standards and building technology in line with new rules to be able to create beautiful buildings that last long, even in the time of pandemics. 

Between client expectations, the construction budget, the local bylaw and building code, most designers become as conservative as possible to deliver an ultra safe result which sacrifices the beauty and in times functionality. There are some exceptions, of course.

Architecture and art of building design are facing another obstacle to deal with. How will we design the buildings of tomorrow to deal with transmittable diseases?

Modern Building, building technology
Modern Building

Building Technology and the New Normal

Physical distancing, adjusted schedules, split shifts where possible, and implementing healthcare officials in operating businesses are all part of the new normal. Construction workers belong to no exception. New rules are deployed to maintain the strict limits defined by expert authorities in order to maintain productivity in the safest conditions available.

Engineers and contractors are on the learning curve, earning precious safety experience on a daily basis. Sharing knowledge has become essential, internally, and within industry associations, as well as with jurisdictions across the country. It leads to establishing new, more adequate protocols and educating others on what they needed to do to work safely.

The facemasks are obligatory for workers in some conditions, together with handwashing and hand sanitizing stations at worksites. Work crew transportation is limited, while worksites introduced non-contact temperature screening to identify carriers.  Building technology keeps changing and adapting, too.

Innovation is the key to maintaining business operating as usual (or new norm!). It might seem, in the beginning, that general guidelines have covered every issue. Only after the project starts, it may become apparent just how many details need special attention. Have you been thinking about the possibility of hanging a large window while maintaining the recommended physical distance?

ultra modern home
Building of tomorrow?

What May Change in Near Future

How can commercial and office buildings keep functioning? Is it possible for big offices to disappear and be replaced with small satellite offices? In such a case, something will have to be done with the vast existing square footage of empty office and commercial buildings. Who will pay for their mortgage and recurring maintenance fees? 

Turning offices to residential units won’t make them suitable or justify the initial cost.

Even if they do, what kind of tenants will be renting them? Too many rental units available on the market will eventually lead to a rental unit market crash. That alone is sufficient reason to make the repurposing idea unattractive for owners of office buildings.

building tehnology

Some offices are operating with a reduced number of employees working simultaneously. It has become a necessity to create physical distance and a safe working environment. However, that situation won’t last forever. It’s not in the business’s best economic interest to pay the costly lease for big operating space with fewer employees.

How will the hospitality industry adapt? The pandemic heavily influenced the industry, with the number of guests lowered drastically. Would they continue their operation the same way?

The music industry, sports industry, and entertainment industry, in general, all have their survival depending on the mass public’s presence. We need ways to reformat the structure of existing arenas and theatres, to make them sustainable in line with the new normal.

Are we witnessing another industrial revolution, or is this just a temporary hiccup and everything will go back to normal?

Restaurant designer
Not this future

Single-Family and Multi-Family Homes—What Can We Expect to Improve in These Buildings?

Ensuring adequate ventilation is the best standard practice for improving indoor air quality. Increasing ventilation alone is not enough to protect people from COVID-19. However, in combination with other best practices recommended by the Health Officials, it’s a vital part of a plan to protect yourself and your family.

Naturally, to improve ventilation in your home, you can open the windows or screened doors. You can also install and operate a window air conditioner with outdoor air intake or vent, with the vent open. Running a bathroom fan is another highly recommendable practice. 

renovation company surrey
Bathroom Renovation

Can Building Technology Help Protect Our Loved Ones in Our Living Space?

Most of the new single-family homes are installing Heat Recovery Ventilation (HRV) which filters indoor pollution. If you are buying a house or have a house that doesn’t have one, I recommend installing one ASAP. If you live in a rental unit make sure the units are not interconnected through internal air ducts which can cause the air from one unit to spread to another one!

Most of the multi-family homes use separate ducking for each unit in order to avoid air mix between units. Check that with your building maintenance manager to make sure. In case your building has a different design, you should ask them to have the significant improvements done as some lives are depending on it.

Some building managers and others are trying to take steps to prevent contamination between rooms by avoiding the possibility of airborne transmission. Technicians should identify the ways and directions the air moves through spaces before installing new devices or upgrading air ventilation systems. Such tests should determine both the flow and leakage.

Several options are available. Some involve HVAC upgrades, and others are focusing on more straightforward solutions to address any problems detected. These solutions might include installing new doors or air curtains, as well as generating overpressure over suspended ceilings, and sealing any gaps.

house designer surrey, building technology
House designer surrey

HVAC Systems

Heating, Ventilating, and Air-Conditioning (HVAC) systems are a double-edged sword. Adequately designed and operated, these systems may help in reducing the airborne concentration of pathogens and microorganisms, lowering the risk of transmission through the air. 

(HVAC) systems should not be modified without prior assessment. For maximum safety, such work should be conducted by an appropriately qualified and experienced engineering professional. Any system modifications done by an inexperienced person who does not understand the system or how it works, can increase risks. A wrong setting will have an impact on all other building systems, which could end up in more harm than good. The results would have adverse effects on health and safety, air quality, building air pressure/balance, performance/operation of the HVAC equipment, etc.

Recommendable modifications that require professional assistance to avoid the risk of negatively affecting the performance of the HVAC and other building systems include:

  • replacing existing air filters with higher efficiency air filters;
  • enclosing or separating rooms with temporary or permanent means
  • changing fan speeds, along with adding supply/exhaust fans
  • installing additional integrated filtration units
  • blocking diffusers, or altering existing airflows
  • altering the standard programming of system controls

All alterations to HVAC or other building systems should only be done in consultation with an appropriately qualified and experienced engineering professional.

Maple ridge contemporary home
Healthy home

Protect Yourself Beyond Physical

The vaccine will soon become available and calm the storm down. However, we can’t predict when the next episode of these epidemics will hit us. This might be a new NORM!!!

We are living in an era that the world powers are fighting over world domination. We, as consumers, are victims of their games. So, live like everything will be OK forever, but prepare as if you expect more of these plays.

The face mask is one of a temporary bandaid on the problem and is not enough to do the job.

You are probably aware that you don’t have to wear a face mask in your house or unit if you don’t have a visitor. Even more, wearing a face mask all day long is bad for your health as well. But we are social beings and we can’t jail ourselves inside all the time. We need to get some fresh air or meet a friend or go shopping, right?

Most communities and buildings have already implemented a safety protocol, which is good to follow.

Don’t panic! follow a simple protocol, and stay calm. The more you panic, the more you affect your immune system. Secure the best ventilation you can afford while at home. Wear a mask when you are in public closed areas, and wash your hands often. Stay away from unhealthy food.

Chinese medicine puts its trust into our own immune system to fight any disease. It would help if you did the same. Keep calm. No need to follow the bad news, which does nothing but make you anxious.

Building technology, stay happy

In Short

Remember, life is a journey, and we should take the ride with joy. These times will go by, and we will laugh at them in the near future. All we need to do is to prepare our community and adapt buildings for a better, safer and more organized future.

Keep smiling and let everyone see your smile even through your mask!!!

By Aryo Falakrou (My Home Designer)